Evento Spainsif: Prácticas de buen gobierno: engagement y voting

Como asesores de voto en España, participaremos en el evento organizado por Spainsif y el Instituto de Empresa (IE) sobre las prácticas de buen gobierno relacionadas con el compromiso accionarial y el voto en junta de accionistas que se celebrará en Madrid el próximo martes 19 de febrero 2019.

¿Cómo pueden los inversores institucionales influir en las políticas de buen gobierno de las empresas? ¿Qué impacto tiene el buen gobierno y el compromiso accionarial en la estabilidad de los mercados financieros? ¿Cuál es la importancia y características de las estrategias de inversión socialmente responsable al respecto? ¿Qué impacto tiene el aumento de la “inversión pasiva” en el buen gobierno de las compañías cotizadas? ¿Está adaptado el proceso de votación en las JGA para que los ahorradores finales vean reflejadas sus preferencias en temas ASG?

Esperamos despejar éstas y muchas otras cuestiones durante el debate.

Spainsif es el principal foro en España en la promoción de la inversión sostenible y responsable, compuesto en la actualidad por más de 70 miembros.

La apertura inicial del evento estará liderada por el Profesor D. Joaquín Garralda, Decano de Ordenación Académica de IE Business School y por D. Jaime Silos, Presidente de Spainsif.

Posteriormente, participaremos en el debate los siguientes invitados:

- Profesor D Joaquín Garralda, Decano de Ordenación Académica del IE Business School

- D. Manuel Álvarez, Secretario General de OCOPEN

- D. Andrés Herrero Martín, Unidad de Previsión Social de UGT

- D. Iván Diez, Country Manager, Groupama Asset Management

- D. Alex Bardají, Director de Alembeeks Group

Las inscripciones pueden realizarse desde este enlace.

Esperamos encontraros en el evento.

M&A transactions and shareholders: Bristol-Myers case

Shareholders’ voting rights cannot be forgotten in M&A transactions. They are a key element for the achievement of the deals where quoted companies are involved. With this post, we want to highlight a current mismatch in price related to the uncertainty of the will and vote of shareholders involved in a recently announced M&A transaction.

Bristol-Myers Squibb (BMY) began this January 2019 announcing a massive $74 billion acquisition of Celgene (CELG). This makes it the third largest M&A transaction in pharma’s history after 1999 Pfizer/Warner-Lambert and 2000 Glaxo Wellcome/SmithKline Beecham.

If the cash-and-stock transaction closes, Celgene shareholders will receive one BMY share and $50 in cash for each Celgene share. Celgene shareholders will also be remunerated with one tradeable Contingent Value Right ("CVR") for each share of Celgene, which will entitle its holder to receive a one-time potential payment of $9 in cash upon FDA approval of all three of ozanimod (by December 31, 2020), liso-cel (JCAR017) (by December 31, 2020) and bb2121 (by March 31, 2021), in each case for a specified indication.

Based on the closing price on January 25, 2019, of $48,93 BMY per share, the cash and stock consideration to be received by Celgene shareholders at closing is valued at $98,93 per Celgene share and one CVR. Nevertheless, Celgene shares closed at this same day at $87.62. This represents an 11,4% disparity in price and it is mainly caused by the risk of deal-refusal by the shareholders of both or one of the companies.

Though the executives and board of directors of both companies have promoted and supported the transaction, the market is discounting the risk of shareholders’ opposition to go forward. Especially from the BMY side, as they are the ones paying the biggest part of the party.

A significant portion of the $74 billion acquisition value will be funded through a Bristol-Myers Squibb dilutive issuance of new shares to Celgene’s shareholders and the rest will be funded by new debt. When completed, Bristol-Myers Squibb shareholders are expected to own about 69% of the company, and Celgene shareholders are expected to own roughly 31%.

On top, BMY has already confirmed that is taking out a $33.5 billion bridge loan to help finance its purchase of Celgene. This loan, which will be underwritten by Morgan Stanley Senior Funding, Inc. and MUFG Bank Ltd., will rank as the seventh largest bridge facility on record according to Bloomberg.

Once completing the acquisition, Bristol-Myers Squibb will also have to include Celgene’s net debt (which stood at $18 billion at the end of the third quarter) on their new combined balance sheet. After combining this with Bristol-Myers Squibb’s current net cash position and the approximately $35 billion cash acquisition outlay, it leaves the new combined company’s net debt approximately at $48b according to company statements. This makes that net leverage after the deal will be 2.8 times debt to EBITDA and Moody’s and S&P put the company’s ratings on review for downgrade after the announcement.

The purpose behind this transaction is to create an innovative biopharma leader, to enhance leadership positions across the new combined portfolio and to benefit from operational and commercial synergies, according to BMY CEO. Nevertheless, the price divergence shows that investors remain cautious about the outcome of the voting process in each company general meeting.

In the end, shareholders will decide and fears will be either corroborated or vanished.

7 takeaways from the Unilever U-Turn

During these last months, we have followed up the battle for changing the governance and structure of Unilever. This case offers 7 takeaways for IR departments that we think are worth sharing.

The actions carried out by the Unilever board, some UK institutional investors, government lobbyists and the economic and conventional press have seasoned one of the stories that have captured great interest among the specialists in the corporate governance sector during this year.

Unilever is one of the world’s leading consumer goods companies. It was formed by the merge of operations of Dutch Margarine Unie and British soapmaker Lever Brothers in 1930. Since then, the Anglo-Dutch consumer goods group has operated as a dual-listed company. In this case, it consists of Unilever PLC, based and listed in London, and Unilever N.V., based in Rotterdam and listed in Amsterdam. The two companies operate as a single business, with a common board of directors, adopt the same accounting principles and pay dividends to their respective shareholders on an equalized basis. N.V. and PLC.

On 15 March 2018, the board of Unilever announced the intention to simplify the Unilever Group’s dual-parent structure under a new single holding company that should be based in Rotterdam. This process was termed as “Simplification”. The Extraordinary General Meetings to approve this change were planned for the 25 and 26 October 2018.

In Alembeeks Group, as proxy advisors, we analyzed the proposal and advised our clients to vote FOR as we agreed that the proposed structure improved some of the limiting and unequal conditions that are currently applicable to existing Unilever shareholders. We assessed also that the new simpler structure also unlocks certain constraints that might help the company attain a fair value and a greater flexibility to grow in the future.

Nevertheless, after a rebellion lead by main UK based asset managers – Columbia Threadneedle, Aviva Investors, M&G, L&G, and Schroders – the Unilever board decided to U-turn and withdrew the proposal.

In our opinion, Unilever major U-turn offers at least 7 takeaways for IR departments that can be applicable to other companies when thinking about voting major changes:

  1. A “good proposal” may have also detractors. There are several reasons for having opposition in a proposal that technically and according to all the corporate governance handbooks is a clear vote “FOR”. Shareholders base is not uniform, and shareholders' interests are not always aligned. Shareholders may have conflicts of interest in their different investment horizon approaches towards the company. Some proposals may look for a better long-term competitiveness but might imply a short-term setback that some shareholders are not willing to bear. In this Unilever case, the fact of falling from the FTSE 100 had been claimed as a major argument to vote against the proposal among detractors. The fact that the company was gaining flexibility to adapt to the market and improving its governance structure was not considered among those short-term oriented shareholders. Nevertheless, all shareholders have the right to vote according to their own views, which means that all may be right at the same time, voting for different options.
  2. A proposal should have no weak points at all. The weakest side of a proposal will be the most attacked and it will give a strong argument against it. In this Unilever case, it was the pending resolution of the Netherland’s government about the abolition of the dividend tax. It created fear not only among UK shareholders, but it also created rebuke among some Netherland stakeholders.
  3. The content of a proposal must be perfect, but also must be the timing. In this case, the proposal was planned during a period in which the Brexit tensions were in their zenith. It made that this issue fell in the scope of sensationalism. The UK press has found a gold mine with it, and it has been largely commented not only in the economic but also in the yellow press.
  4. Gaining the message battle. Most of the media was labeling the Unilever proposal as a matter of “Going Dutch”, “Leaving UK”, “Moving HQ from London to Rotterdam”, … Efforts must be made to explain the proposal clearly. Sometimes it is difficult to defend some complex arguments against simplistic ones. But this shouldn’t be an excuse. It also may happen that old stories like remuneration or unfinished problems came up and are mixed with the new proposal. In this sense, to face major changes the least unfinished problems, the better.
  5. Earlier shareholder engagement is key to endeavor major changes. By nature, shareholders are not prone to like changes. Engaging shareholders beforehand entails the same efforts than doing it after formally announcing the proposal. In the Unilever case, the board and the management should have paid more attention to this point, as this late withdrawal leave them in a weak stance for the next general meeting.
  6. Pay attention to the stakeholders. Stakeholders may have an indirect but important role in voting. This may come in a wide range of ways depending on the subject. In the case of Unilever, UK fund managers had a special strain from their clients and UK citizens to reveal against the proposal, especially as heated by the UK press. In some sense, this is a good thing, as it probably aligns fund managers vote with the will of their clients. Nevertheless, this ensures a non-robust voting policy.
  7. Beware of voting hurdles. In this case, Unilever needed a 75% majority of the UK votes but also a simple majority among all UK shareholder by number. On the one hand, institutional shareholders are more sensitive to fulfill their fiduciary responsibilities as regulators are pushing in this direction. On the other hand, retail investors are more conscious of their voting rights and their shareholder status than in preceding decades. The era of delegating the vote to the management is over.

In Alembeeks Group, as corporate governance consultants and proxy advisors, we follow up the Annual General Meetings of the listed companies in which our institutional clients invest in and provide them reports to vote in a well-informed manner. We also help listed companies improve their disclosure and corporate governance transparency.

Shareholder activism and coffee

If you are having a break, sipping coffee, but you cannot stop thinking about shareholder activism, we give you a compelling reason to explain your case.

In February 2017 Reuters reported Sachem Head Capital Management LP, activist investor holding 3.38 percent stake, wanted Whitbread’s management to examine a breakup as a way to boost the value of its individual businesses.

In April 2017 a unit of U.S. activist hedge fund Elliott Management, recognised activist investor, said it increased its position and held the largest stake (over a 6 percent) in Whitbread Plc. Elliott stressed that wanted the company to split its two divisions, Costa Coffee and hotels chain Premier Inn.

Last Friday 31st August 2018 Whitbread’s CEO announced the sale of the Costa Coffee chain to Coca Cola Co. for 3.9 billion pounds ($5.1 billion). It’s close to the 3.5 billion pounds to 4 billion pounds the division was estimated to be worth when investors first started to agitate for a breakup of Whitbread two years ago. As Costa’s performance stalled during last quarters, most analysts had since cut their estimate of its value to between 2 and 2.5 billion pounds. The agreement with Coca Cola Co. has been the preferred formula in front of the IPO alternative which had been considered.

According to Bloomberg data, the purchase values the Costa Coffee shops at about 16.4 times 2018 Ebitda — more than the 12.9 times multiple of Starbucks Corp.

According to some analysts, this valuation should make Whitbread’s CEO position more secure after she came under pressure from the two activist investors as Whitbread shares had slipped 12 percent since she took over in December 2015 — trailing the 21 percent gain in the FTSE 100 Index over the same period. Friday’s announcement sent the stock up by almost 20 percent.

Whitbread said it expects to return the “significant” majority of the money to shareholders, and the rest to reduce debt and contribute to its pension plan (see presentation of the sale) with the 3.8 billion pounds of net proceeds from the sale. In the coming months, it will be interesting to look at the stance of the two main investors in relation to the allocation of this fresh cash.

With this transaction Coca Cola Co. diversifies its struggling sugar drink business. “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said Coca-Cola President and CEO James Quincey. “Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform.” Read Quincey's commentary on the announcement.

Once again, we have witnessed with this transaction, an example of how voting power has an impact in the evolution and the strategy of public companies. And how coffee and shareholder activism are, somehow, connected.

Dual class structure: are we aligned?

The dual class structure is one of the topics that is repeatedly commented due to the Facebook, Alphabet (Google) and other tech companies' exposure in the media. But they are not the only ones.

We would like to share with our readers a recent article by Anita Anand, University of Toronto – Faculty of Law. We have found the article is very educational about the dual class share structures and its pros and cons.

In a typical public company, shareholders can elect the board, appoint auditors, and approve fundamental changes. Firms with dual class share (DCS) structures alter this balance by inviting the subordinate shareholders to carry the financial risk of investing in the corporation without providing them with the corresponding power to elect the board or exercise other fundamental voting rights.

This article fills a conspicuous gap in the scholarly literature by providing empirical data regarding the governance of DCS firms beyond the presence of sunrise and sunset provisions.

The summary data suggest that the governance of DCS firms is variable. A large proportion of DCS firms have no majority of the minority voting provisions and no independent chair. By contrast, almost half of the DCS firms have a sunset clause and a majority of independent directors. Finally, just under one-third of DCS firms have change of control provisions over and above existing law.

On the basis of this evidence, this article argues against complete private ordering in favor of limited reforms to protect shareholders in DCS firms including: mandatory sunset provisions, disclosure relating to shareholder votes, and buyout protections that would address weaknesses inherent in DCS firms.

We also share a short article published at Bloomberg, which we find relevant as displays a couple of charts about the evolution of this capital structure during the last decades. We hope you find this information useful.

Alembeeks Group is an independent proxy advisor. Institutional investors need a proxy advisor that can help them effectively and efficiently make informed voting decisions and record keep all their votes.

Oracle: Director's independence and tenure

Taking advantage of the new Nassim Taleb’s book release “Skin in the Game”, we propose one of his ideas to introduce our note:

“When the Beard (or hair) is black, heed the reasoning, but ignore the conclusion. When the beard is gray, consider both reasoning and conclusion. When the beard is white, skip the reasoning, but mind the conclusions.”

Oracle has announced it Shareholders Annual Meeting 2017 for November 15. Among the different proposals, the shareholders will have the opportunity to vote on the already recurring issue of the advisory vote on executive compensation. Certainly this is a major issue as Oracle is the only S&P 500 company that has failed say-on-pay five years in a row.

Oracle executive salaries have been surprisingly disconnected to sector practices and company performance evolution. This year the pay-packages are more modest, however other proxy advisors like ISS have also raised their concerns, as Bloomberg reports.

Nevertheless, in this note we would like to focus our concern on Oracle’s board structure. Though the board is formed by 8 independent directors out of 12, its composition could be considered less independent if we scratch a little deeper. The case is that Oracle’s board of directors is significantly above-average in terms of tenure and seniority compared to the sector.


In our view, a clear independence issue in Oracle’s board is the fact that directors’ tenure is especially long. Average tenure almost doubles its peers (see right chart above). Three Independent directors hold tenures of over 15 years. Mr. Berg, who also chairs the Independence committee, reaches 20 years as Director. Mr. Boskin, who chairs the Finance and Audit committee, is director since 1994, which amounts to 23 years. Moreover, Ms. Seligman, director since 2005 and vice-chair of the Compensation committee, has kept the role while compensation proposals have been rejected by shareholders for five years in a row.

Independence is one of the main factors when valuing directors and, unfortunately, is one of the most difficult to assess. Independence is ultimately demonstrated by the decisions they make. We consider highly relevant that members of the key committees (audit, nomination and compensation) have no apparent conflicts of interest that would interfere on their capacity to make objective decisions. Companies with robust director evaluation programs should not need a mandatory retirement age to detect poorly performing directors. Similarly, younger directors need to undergo the same evaluation to ensure that their performance is up to par.

However, in some other legislations, tenure is formally limited to avoid this blurred timing area. In the UK, the UK Corporate Governance Code provides that a board should explain, in its annual report, its reasons for determining that a director who has served more than nine years qualifies as independent. Nine years has also been adopted as the appropriate yardstick for director tenure in Singapore, South Africa and Hong Kong. Twelve years in the case of Spain.

An interesting study of Yaron Nili, University of Wisconsin, 2015, suggests that the trend of increased director tenure is a reaction of companies which have been forced to remove many high ranked executives from the board room. In this sense, the “new insider” role arises as a “hybrid board member who complies with independence requirements but at the same time, through longer tenure and other attributes, possesses many of the traits that corporate insiders previously brought to the board table.”

Another issue that raises our concern on the current Oracle’s Board composition is that it comprises 58% of directors in their 70’s, 25% in their 60s and only 17% in their 50s (see left chart above). We certainly value seniority contributions to the board tables in many positive ways, notwithstanding, such unbalanced seniority composition may not be fostering the appropriate added value in comparison to other companies in the same technology sector like the ones shown in the chart above.

Find below the directors proposed by the company to be reelected during the next General Meeting 2017, November 15:


Director Category Age First Year Tenure
Berg Independent 70 1997 20
Boskin Independent 71 1994 23
Catz CEO 55 2001 16
Chizen Independent 62 2008 9
Conrades Independent 78 2008 9
Ellison CTO, Founder 73 1977 40
Garcia-Molina Independent 63 2001 16
Henley Vice Chairman 72 1995 22
Jurd CEO 60 2010 7
James Independent 53 2015 2
Panetta Independent 79 2015 2
Seligman Independent 79 2005 12
Average 67,92 14,83


This is note is not a proxy advisory report. In case you, require further information please contact us

Further information about Oracle’s proxy statements can be found in this link.

Shareholder activism summer readings

Summertime is leaving some space to shareholder activism articles in influential newspapers. In this sense, we would like to share a couple of them, hoping that this trend evolves in something more than a “summer reading”.

The first one, “Call to action” published by The Economist summarizes the recent movements within of activist institutional investors in relation to European companies during these last months.

The second one, “O Canada -- 'The Promised Land For Shareholder Activism'”, published by Forbes, it offers an interesting interview to a veteran proxy advisor that gives us an initial global overview an a following focus on Canada situation.

Although we share these articles in our blog, as we find them explanatory, we do not support all the statements contained in them. Indeed, there are some that disagree and that we will probably develop in next posts.

Have nice summer readings.

Shareholders’ rights directive 2017/828

In May 2017, it was approved the EU Shareholders’ Rights Directive 2017/828 which modifies the previous Directive 20107/36 as regards the encouragement of long-term shareholder engagement.

We have prepared a summary of this directive focused on the impact in institutional investors, asset managers and intermediaries.

In this sense, we will keep informing when the national chambers transpose this directive into their own legislation during the coming months.

We hope you enjoy the reading.